Pub 970

If you’re planning on pursuing an education, several tax benefits can help you pay for it. These benefits are also outlined in Publication 970, Pub 970 for short. These include the American Opportunity Credit (AOTC), worth up to $2,500 per eligible student, and the Lifetime Learning Credit (LLC), worth up to $2,000 per tax return.

Both of these credits included in IRS Pub 970 are very valuable and can significantly reduce the amount of your income taxes. However, you must be enrolled in an eligible educational program to claim them. While the AOTC and LLC are great ways to lower your taxes, education has other tax benefits that can help make it even more affordable.  For example, tuition, fee deductions, scholarships, or fellowships are taxable, so you should figure these out separately from your other expenses. This can be tedious, so it’s always best to speak with a qualified tax advisor to determine your eligibility.

Additionally, various student loan interest deductions and credits can be used to lower your federal taxes. These are based on your adjusted gross income and are phased out on higher incomes. Students can claim education tax credits on their federal taxes by filing Form 8863. This form can be downloaded from the IRS website, or a copy is provided to you by UCI. Be sure to review your Form 8863 carefully and consult with the IRS or a qualified tax advisor before claiming these credits.

American Opportunity Tax Credit and Lifetime Learning Credit

Tax benefits for education include tax credits, deductions, and savings plans. The three types of tax breaks help lower costs for higher education and make it more affordable for students and families. The American Opportunity Credit (AOTC) and the Lifetime Learning Credit both offer a dollar-for-dollar tax break to eligible students and their families for qualified educational expenses. This is a benefit that can help make college more affordable for both undergraduate and graduate students.

For example, the AOTC provides up to $2,500 per student for the first four years of their post-secondary education as they work toward a degree or other credential. This credit was made permanent by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) and can make college more affordable for many low-income families. However, there are some limitations to the AOTC and the Lifetime Learning Credit. For example, only students who attend college at least half-time can claim the AOTC and the Lifetime Learning credit. Also, the AOTC and the Lifetime Learning Tax Credit do not apply to non-credit courses. These include classes taken for professional advancement, job training, or preparing for a particular career.

A student’s educational institution will usually send the student a form called 1098-T that reports payments received or billed for qualified educational expenses during the year. This information can be used to claim the AOTC or the Lifetime Learning Credit on IRS Form 8863. In addition, the tuition and fees deduction can be claimed by those who paid for qualified education expenses during the year. This can reduce taxable income by up to $4,000 and does not require itemization on the tax return.